SINGAPORE, June 26 (Reuters) - The uphill battle faced by Singapore’s stock exchange to improve its trading volumes appears to be getting only tougher.

This year has seen a sharp drop-off in IPOs and some big deals take a chunk of popular shares off market - both developments adding to the pain caused by a penny stock scandal last year and prompting the bourse to arm itself with new incentives to win back companies and investors.

Lofty ambitions to be one of Asia’s pre-eminent stock markets saw Singapore Exchange Ltd make an unsuccessful $8 billion bid for Australia’s ASX Ltd in 2010. SGX has also always been the most international of Asia’s bourses with some 40 percent of its listed companies from outside the city-state, many from China.

But experts say Singapore’s stock market is becoming a niche player - popular for yield plays such as real estate investment trusts (REITs) and business trusts, as well as the mineral, oil and gas sector but not too much else.

“They have had a pretty bad run,” said Philippe Espinasse, a former investment banker and author of “IPO: A Global Guide”, adding that the bourse had to attract more types of deals.

“It’s a market that has seen so many of these (REIT and business trust) deals and very little else that people tend to think that it’s all that it can take.”

Recent trading numbers have been ugly. In the first five months of the year, share trading on SGX fell by a third to $92.4 billion, making it the second-worst performer among Asia-Pacific bourses after Thailand, data from the World Federation of Exchanges show. By contrast, Hong Kong Exchanges & Clearing Ltd saw a 9 percent increase to $614.6 billion.

Much of the decline stems from an October crash in penny stocks, the most actively traded shares on the bourse. That scared off retail investors, who are estimated to account for just 9 percent of trade compared to 25 percent in Hong Kong.

Seeking to win investors back, SGX Chief Executive Magnus Bocker has cut clearing fees on stock trades and signed up more than 10 financial firms to act as market makers, giving them rebates on clearing fees as incentives to boost liquidity. The bourse is also amending secondary listing rules to attract more overseas firms.

DELISTINGS AND FEW IPOS

But while these measures are seen as part of the solution, market participants do not expect them to revive activity significantly.

Those efforts are also being undermined by a record $13 billion of takeovers of Singapore listed companies so far this year - as owners, put off by the decline in trading volume and encouraged by cheap credit opt to take firms off market.

Major delistings include shopping mall operator CapitaMalls Asia, which had accounted for 5 percent of the Strait Times Index’s trading value, after property developer CapitaLand Ltd offered S$3.2 billion ($2.6 billion) to buy out minority shareholders.

A consortium led by state investor Temasek Holdings also lifted its stake in commodities trader Olam International Ltd to 80 percent from around 52 percent, leading to a sizeable reduction in the company’s free float.

“I see the emergence in taking companies off the exchange but I don’t see the new ones coming to replace,” said investor Jim Rogers.

Key to improving SGX’s fortunes, experts say, will be winning big listings beyond the REITs it is known for and attracting growth stocks like Hong Kong.

But Singapore’s IPO market is having its slowest start since the first half of 2012, managing to list just six companies from January till June 20, fewer than Thailand and Bangladesh which have had nine each, and far behind Hong Kong which has had 30, according to Thomson Reuters data.

Proceeds from Singapore IPOs have fallen 72 percent to $774 million so far this year from the same period a year earlier, reducing SGX’s market share in Asia Pacific to 3.3 percent from 19.2 percent.

The last big Singapore IPO over $1 billion was a REIT in February 2013 while the only big name of late to announce a listing is Russia’s Gazprom - but only a dual listing, raising no funds.

Lawrence Wong, head of listings at SGX, told Reuters the bourse is seeing strong interest from IPO aspirants and highlighted the exchange’s moves to enhance the quality of the market to both issuers and investors.

But the kind of mid-sized Chinese firms that had flocked to SGX till a few years ago have been put off due to depressed valuations, the lack of retail investor interest, and they now have better options in Hong Kong and China.

Attracting listings from other parts of Southeast Asia has also become more challenging as neighbouring countries step up efforts to develop their own bourses.

“If Singapore could be the one go-to place for investing in Southeast Asia, that’ll be great, but it just isn’t going to happen,” said Mark Matthews, head of Asia research at Bank Julius Baer. ($1 = 1.2503 Singapore Dollars) (Editing by Denny Thomas and Edwina Gibbs)